Legal due diligence is the process of collecting, understanding and assessing all the legal risks associated during a M&A process. During due diligence, the acquirer reviews all the documents pertaining to a target company and interviews people associated with it. The idea behind this investigation is to understand if there will be any future legal problems due to this acquisition or not.

Saadany & Khalifa Law firm pays a great attention while carrying out the Merger and Acquisition process and conducting its legal due diligence report due to its importance and for its great effect on the business; as, Firstly, it gives the acquirer a better opportunity to understand the target company and its operations before purchase. Moreover, it acts as an icebreaker between the legal counsel of both organizations so that they can work together to push the deal through.

Secondly, the buyer can use the information obtained through legal due diligence to determine the right amount to pay for the transaction. It also gives a chance for the buyer to closely analyze the financial, structural and operational aspects of the business so that subtle things such as lawsuits against the company, employee and labor arrangements, indemnification processes and intellectual property details can be ascertained.

Thirdly, the information obtained during the legal due diligence process can help both the buyer and the target company to draft appropriate merger and acquisition documents and other ancillary documents as may be needed. It also plays a role in negotiating the right value for both parties, based on the legal obligations of the target company.

Fourthly, the legal due diligence process will help to identify the possible problems that can act as impediments to closing the deal. When both parties know the possible impediments, they can take steps to address the same to ensure the smooth completion of the agreement.

Lastly, both of the companies' legal counsels have to give a legal opinion at the time of completion of the deal. So, it is important that both legal teams are on the same page when it comes to certain legal aspects. For this reason, a good rapport is essential, and legal due diligence can help to provide that.

Therefore, Saadany & Khalifa Law firm shares, in this article, some insights and generic outlines designed to help the investors think strategically about possible legal issues facing their businesses.

Saadany & Khalifa Law firm divided the due diligence process into three segments Preparation, Execution, and Closure, as follows:

1- Preparation

Due diligence process begins when the acquiring company and the target company have reached an initial understanding for their M&A deal may be in a form of a letter of Intent of memorandum of understanding. By getting this step, you can get started.

A. Draw up the legal boundaries

There is a need for the parties to have an agreement on the confidentiality of the information to be gathered and compiled during due diligence. The parties draw up non-disclosure agreements, where they set the ground rules about the use and disclosure of any and all information, the scope and limitation of the review that will be conducted, and the extent of freedom of the employees or personnel of the parties when it comes to the exchange of sensitive information and other matters related to the deal.

B. Form your due diligence team

Due diligence cannot be conducted by a single person. It is best performed by a team that is put together for the specific task of performing due diligence. Saadany & Khalifa Law Firm can provide you with skilled and experienced professionals in matters related to M&A such as: financial and business professionals.

2- Execution

The Execution stage will have the due diligence team collecting the information, analyzing and evaluating them, and finally sharing the results of their analysis or evaluation, as appropriate.

It should be noted that the review by the due diligence team may take a while, depending on several factors, such as the availability of the documents, the complexity of the underlying transactions, and the cooperation of all parties involved

3- Closure

After finishing up the due diligence process, it is time to disclose the results of the review to the management, who will then make the final decision.

There are several possibilities or findings after conducting the due diligence:

  • A "clean bill of health". This means that we found nothing that would materially make the management NOT go through with the M&A. It's a go, and the team can immediately proceed to integration planning.
  • There were several irregularities or risks. This could also mean that the review turned up several misrepresentations made by the management of the target company. In this case, the management can take any of the several actions:

    - Continue with the integration as planned;

    - Lower their bid for the target company, using the findings as a basis for revaluation;

    - Request modifications of the findings and require warranties from the target company; or

    - Tweak the contract or purchase agreement to address potential damages that may incur in the future as a result of the misrepresentations.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.